Deck 19: Accounting for Partnerships

Question 1

The partnership ____________________ is a written contract that specifies the rights and responsibilities of the partners.

Answer 1

agreement

Question 2

A gain or loss on revaluation of assets should be allocated to the partners according to the balances of their capital accounts.

Answer 2

False

Question 3

Salary and interest allowances for partners are treated as expenses of the firm and are used in the determination of net income.

Answer 3

False

Question 4

If a new partner purchases an interest in a partnership firm directly from an existing partner, the Cash account is debited and the new partner's capital account is credited.

Question 5

The dissolution of a partnership and the formation of a new partnership may have no noticeable effect on the continuing operations of the business.

Question 6

Upon withdrawal, the withdrawing partner(s) may receive less than their capital account balances.

Question 7

A partnership has a(n) ____________________ life because it ends with the death or withdrawal of any partner.

Question 8

Each general partner has ____________________ liability for the debts of a partnership.

Question 9

An association of two or more persons to carry on, as co-owners, a business for profit is called a(n) ___________________.

Question 10

The entry to close a partner's drawing account at the end of a fiscal period includes a debit to the partner's drawing account.

Question 11

Salary and interest allowances are considered in distributing net income to partners but not in distributing a net loss.

Question 12

The characteristic of a partnership that means that any partner can make valid contracts for the partnership is known as ___________________.

Question 13

Investments by a partner are credited to that partner's capital account.

Question 14

A legal partnership does not exist unless there is a written partnership agreement.

Question 15

A partnership has a limited life. It ends with the death or withdrawal of a partner.

Question 16

It is customary for a partnership's income statement to show how the net income or loss for the year has been divided between the partners.

Question 17

The assets of a sole proprietorship are revalued before they are assumed by a partnership.

Question 18

The cost of merchandise withdrawn by a partner for personal use is recorded as a debit to the partner's drawing account and a credit to the Purchases account.

Question 19

Some partners, known as limited partners, may not be personally liable for the debts of the partnership.

Question 20

The journal entry to record the division of a partnership profit consists of a debit to each partner's capital account and a credit to Cash.

Question 21

The statement of partners' equities summarizes the changes in the partners'_________________ accounts in an accounting period.

Question 22

When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship

A) must be transferred to the partnership at the values reflected in the financial records of the proprietorship.
B) must be converted to cash and used to pay any debts of the proprietorship, with excess cash available for investment in the new partnership.
C) cannot be invested in the new partnership.
D) may be adjusted to reflect current values before being transferred to the partnership.

Question 23

Which of the following statements is not correct?

A) Each general partner has unlimited liability for the debts of a partnership.
B) Federal income tax is levied on the net income of a partnership and on the earnings of the individual partners when the net income is distributed to them.
C) Any general partner can make valid contracts for a partnership and can otherwise conduct its affairs.
D) When a partner dies or is incapacitated, the partnership is dissolved.

Question 24

The entry to record the investment of cash in a partnership by one partner would consist of a debit to

A) the partner's capital account and a credit to Cash.
B) Cash and a credit to an account called Partners' Equities.
C) Cash and a credit to the partner's capital account.
D) Cash and a credit to the partner's drawing account.

Question 25

Robert Ballard, a sole proprietor, entered into partnership with another individual. Ballard's investment in the partnership included equipment that cost $64,000 when it was purchased. The equipment has a book value of $26,000 and a net agreed-on value of $32,000. In the financial records of the partnership, this equipment and its accumulated depreciation should be recorded at

A) $64,000 and $38,000, respectively.
B) $32,000 and $6,000, respectively.
C) $32,000 and $0, respectively.
D) $26,000 and $0, respectively.

Question 26

Amounts withdrawn by partners to pay personal living expenses are recorded in their ____________________ accounts.

Question 27

If a partnership's salary and interest allowances are in excess of the net income, the entry to close Income Summary after the allowances are recorded will include a(n) ____________________ to Income Summary.

Question 28

If plant and equipment are transferred from a sole proprietorship to a partnership, the Accumulated Depreciation accounts start with ____________________ balances in the partnership records.

Question 29

The amount that each partner withdraws from a partnership

A) cannot exceed the net income reported by the partnership.
B) should be specified in the partnership agreement.
C) is the base on which federal income taxes are levied on the partnership income.
D) is usually determined by the amount of the net income.

Question 30

Which of the following statements is correct?

A) The general ledger of a partnership will include a single capital account, whose balance represents the combined equity of all the partners.
B) Past-due accounts receivable should not be transferred from the financial records of a sole proprietorship to a newly formed partnership.
C) The financial records of a new partnership are opened with a memorandum entry in the general journal.
D) A new partner must purchase the partnership interest of another partner.

Question 31

The entry to record a partner's interest allowance includes a debit to the ____________________ account.

Question 32

Federal income tax is levied on

A) a partnership based on its total net income when earned.
B) the partners for their individual shares of the reported partnership income.
C) the partners only when they withdraw earnings from the partnership for personal use.
D) the partnership at the end of the fiscal period.

Question 33

Which of the following is not a characteristic of a partnership?

A) Each general partner has unlimited liability for the debts of the partnership.
B) If one partner dies or leaves the partnership, the existing partnership is terminated.
C) The partnership income is subject to a federal income tax that is levied on the business but not on the partners.
D) The existing partnership agreement is dissolved and a new agreement is formed when a new partner joins the partnership.

Question 34

Withdrawals of assets from a partnership that are intended to permanently reduce the invested capital are recorded as debits to the partners'____________________ accounts.

Question 35

If a partnership's net income is in excess of the salary and interest allowances, the entry to close Income Summary after the allowances are recorded will include a(n) ____________________ to Income Summary.

Question 36

The general ledger of a partnership will

A) not contain a separate drawing account for each partner.
B) contain one capital account that reflects the total equity of all partners.
C) not contain a capital account or accounts.
D) contain a separate capital account for each partner.

Question 37

When dividing partnership net income, the consideration given to the amount of time a partner devotes to the business is called a salary ___________________.

Question 38

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interest, the old partners are said to receive a(n) ___________________.

Question 39

A partnership ____________________ occurs when the partnership's assets are sold, debts are paid off, and the remaining cash is distributed to the partners.

Question 40

Ryan Fuller, a sole proprietor, entered into partnership with another individual. Fuller's investment in the partnership included equipment that cost $32,000 when it was purchased. The equipment has a book value of $13,000 and a net agreed-on value of $16,000. In the financial records of the partnership, this equipment and its accumulated depreciation should be recorded at

A) $16,000 and $0, respectively.
B) $13,000 and $0, respectively.
C) $32,000 and $19,000, respectively.
D) $16,000 and $3,000, respectively.

Question 41

All of the following are included on the statement of partners' equities except

A) withdrawals.
B) additional investments.
C) salary allowances.
D) share of net income or net loss.

Question 42

Partnership net income of $33,000 is to be divided between two partners, Elan Chan and Roy Anderson, according to the following arrangement: There will be salary allowances of $20,000 for Chan and $10,000 for Anderson, with the remainder divided equally. How much of the net income will be distributed to Chan and Anderson, respectively?

A) $22,000 and $11,000
B) $21,500 and $11,500
C) $16,500 and $16,500
D) $21,000 and $12,000

Question 43

The entry to record the equal distribution of net income between two partners consists of a debit to

A) Income Summary and a credit to each partner's capital account.
B) each partner's capital account and a credit to Cash.
C) Income Summary and a credit to each partner's drawing account.
D) each partner's capital account and a credit to Income Summary.

Question 44

Mary Ann Mason operates a sole proprietorship business that sells craft supplies. On January 1, 2013, Mason has agreed to transfer her assets and liabilities to a partnership that will operate The Craft Company. Mason will own a one-third interest in the capital of the partnership. The agreed upon values of assets and liabilities to be transferred follow.
Accounts receivable of $2,000 (of which approximately $200 is uncollectible)
Merchandise inventory, $4,000
Furniture and fixtures, $6,000
Accounts payable, $1,000
Record the receipt of the assets and liabilities by the partnership on page 1 of a general journal. Omit the description.

Question 45

Janice Miller operates a sole proprietorship business that sells camping equipment. On January 1, 2013, Miller has agreed to transfer her assets and liabilities to a partnership that will operate The Camping Company. Miller will own a two-thirds interest in the capital of the partnership. The agreed upon values of assets and liabilities to be transferred follow.
Accounts receivable of $50,000 (of which approximately $2,000 is uncollectible)
Merchandise inventory, $90,000
Furniture and fixtures, $60,000
Accounts payable, $32,000
Record the receipt of the assets and liabilities by the partnership on page 1 of a general journal. Omit the description.

Question 46

Kara Johnson and Tyler Jones are partners, and each has a capital balance of $100,000. To gain admission to the partnership, Raiden Nash pays $60,000 directly to Johnson for one-half of her equity. After the admission of Nash, the total partners' equity in the records of the partnership will be

A) $200,000.
B) $250,000.
C) $260,000.
D) $300,000.

Question 47

Blake Kredell owns and operates a retail business called Blake's Camera Shop. His postclosing trial balance on December 31, 2013, is provided below. Blake plans to enter into a partnership with Carmen Santos, effective January 1, 2014. Profits and losses will be shared equally. Blake will transfer all assets and liabilities of his store to the partnership, after revaluation. Santos will invest cash equal to Blake's investment after revaluation. The agreed values are: Accounts Receivable (net), $7,500; Merchandise Inventory, $27,000; and Store Equipment, $8,000.The partnership will operate under the name Picture Perfect. Record each partner's investment on page 1 of a general journal. Omit descriptions.
Prepare a balance sheet for Picture Perfect just after the investments.

Question 48

The entry to record a partner's salary allowance consists of a debit to

A) the partner's capital account and a credit to Cash.
B) Salaries Expense and a credit to the partner's drawing account.
C) Income Summary and a credit to the partner's capital account.
D) Income Summary and a credit to the partner's drawing account.

Question 49

Partnership net income of $132,000 is to be divided between two partners, Jessie Folk and Jessica Stephens, according to the following arrangement: There will be salary allowances of $80,000 for Folk and $40,000 for Stephens, with the remainder divided equally. How much of the net income will be distributed to Folk and Stephens, respectively?

A) $88,000 and $44,000
B) $86,000 and $46,000
C) $84,000 and $48,000
D) $66,000 and $66,000

Question 50

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interests, an entry is made to debit

A) Cash and credit the capital account of each existing partner.
B) Cash and credit the drawing account of each existing partner.
C) Cash and credit the Income Summary account for the excess.
D) each existing partner's capital account and credit Cash.

Question 51

Sam McGuire and Marcos Valle are partners, and each has a capital balance of $50,000. To gain admission to the partnership, Scott Jordan pays $35,000 directly to Valle for one-half of his equity. After the admission of Jordan, the total partners' equity in the records of the partnership will be

A) $50,000.
B) $67,500.
C) $85,000.
D) $100,000

Question 52

The salary and interest allowances in a partnership profit-sharing agreement can best be described as

A) expenses of the business that are deducted from revenue in the determination of net income.
B) amounts on which each partner will not have to pay income tax.
C) a means of distributing net income in relation to the services provided and the capital invested by each partner.
D) a legal requirement in order for a partnership to be formed.

Question 53

Ben White and Lisa Caputi are partners, and each has a capital balance of $50,000. To gain admission to the partnership, Tim Smith pays $30,000 directly to White for one-half of his equity. After the admission of Smith, the total partners' equity in the records of the partnership will be

A) $150,000.
B) $130,000.
C) $125,000.
D) $100,000.

Question 54

Partnership net income of $66,000 is to be divided between two partners, Elan Julia Hood and Brian Duffy, according to the following arrangement: There will be salary allowances of $40,000 for Hood and $20,000 for Duffy, with the remainder divided equally. How much of the net income will be distributed to Chan and Anderson, respectively?

A) $33,000 and $33,000
B) $42,000 and $24,000
C) $43,000 and $23,000
D) $44,000 and $22,000

Question 55

Partnership net income of $75,000 is to be divided between two partners, Bob Garcia and Jerry McKernan, according to the following arrangement: There will be salary allowances of $30,000 for Garcia and $20,000 for McKernan, with the remainder divided equally. How much of the net income will be distributed to Garcia and McKernan, respectively?

A) $40,000 and $30,000
B) $42,500 and $32,500
C) $45,000 and $35,000
D) $67,500 and $57,500

Question 56

The partners' salary and interest allowances are recorded in

A) expense accounts.
B) drawing accounts.
C) capital accounts.
D) liability accounts.

Question 57

Which of the following statements is correct?

A) If a new partner invests cash in an existing partnership and a bonus is given to a new partner, the old partners' capital accounts increase.
B) When a new partner is admitted to an existing partnership upon an investment of cash, the new partner's capital accounts may appropriately be debited for an amount other than the amount of cash invested.
C) The partnership agreement should include steps to follow if a partner withdraws from the partnership.
D) When a new partner is admitted to an existing partnership upon an investment of cash, the new partner's capital accounts will equal the amount of cash the new partner invested.

Question 58

Danny Ortiz and Angela Hufford are partners, and each has a capital balance of $25,000. To gain admission to the partnership, Derek Peters pays $15,000 directly to Ortiz for one-half of his equity. After the admission of Peters, the total partners' equity in the records of the partnership will be

A) $65,000.
B) $62,500.
C) $50,000.
D) $75,000.

Question 59

If no other method of dividing net income or net losses is specified in the partnership agreement, it is divided

A) in relation to the partners' capital account balances.
B) in relation to the amount of time each partner devotes to the business.
C) in relation to the original investment by each partner.
D) equally.

Question 60

Which of the following statements is correct?

A) If partners consider their cash withdrawals to be compensation for the work they do for the partnership, the amounts of the withdrawals should be charged to Salaries Expense.
B) If there is no specific agreement on the division of partnership profits and losses, they are divided equally among the partners.
C) If a salary is allowed to one partner, other partners also must receive a salary allowance.
D) None of the above statements is correct.

Question 61

Net income for the Gifts Galore for the year ended December 31, 2013, was $18,000. The partners, Chang and Jennings, share profits in the ratio of 70 and 30 percent, respectively.
1. How much of the net income will be allocated to Chang?
2. How much of the net income will be allocated to Jennings?

Question 62

Nancy Conradt and Chris Russell are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2013, they decide that Russell will sell one-half of his interest to Pam Ortega. At that time, the balances of the capital accounts are $500,000 for Conradt and $700,000 for Russell. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $411,200 revalued at $403,600, and a building with a book value of $260,000 revalued at $450,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

Question 63

Madison and Hamilton are partners who share profits and losses equally. The partnership agreement provides that Madison will be paid an annual salary of $40,000 and Hamilton will be paid an annual salary of $30,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $80,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Madison?
2. What amount of net income or loss will be allocated to Hamilton?

Question 64

Patsy Garrison owns and operates a bakery called Patsy's Pasteries. Her postclosing trial balance on December 31, 2013, is provided below. Garrison plans to enter into a partnership with Erika Noreen, effective January 1, 2014. Profits and losses will be shared equally. Garrison will transfer all assets and liabilities of her store to the partnership, after revaluation. Noreen will invest cash equal to Garrison's investment after revaluation. The agreed values are: Accounts Receivable (net), $15,000; Merchandise Inventory, $54,000; and Store Equipment, $16,000. The partnership will operate under the name Baker's Delight. Record each partner's investment on page 1 of a general journal. Omit descriptions.
Prepare a balance sheet for Baker's Delight just after the investments.

Question 65

Martinez and Lopez are partners in business named Builders' Services. For the year ended December 31, 2013, net income for Builders' Services was $60,000.
Net income or loss is allocated on the basis of the balances of the partners' capital accounts at the beginning of the year. On January 1, 2013, the balances were Martinez, $48,000, and Lopez, $24,000.
1. How much of the net income will be allocated to Martinez?
2. How much of the net income will be allocated to Lopez?

Question 66

Bryce and Kendall are partners. The partnership agreement provides for salary allowances of $52,000 for Bryce and $44,000 for Kendall and for interest of 10 percent on each partner's invested capital at the beginning of the year. The balance of any remaining profits or losses is to be divided 40 percent to Bryce and 60 percent to Kendall. On January 1, 2013, the capital account balances were Bryce, $150,000, and Kendall, $190,000. Net income for the year was $144,000.
1. On page 22 of a general journal, record the following entries on December 31, 2013. Omit descriptions.

A) Record the salary allowances for the year.
B) Record the interest allowances for the year.
C) Record the division of the balance of net income.
D) Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries.
2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2013.

Question 67

Catherine Vollick and Danica Hubbard are partners. To expand the expertise of their business, they have agreed to admit Kyle Simon to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Vollick, $80,000, and Hubbard, $60,000. Net income or net loss is shared equally. On page 8 of a general journal, record the admission of Simon to the partnership on January 1, 2013, assuming that Vollick sells one-half of her interest to Simon for $50,000 in cash. Omit the description.

Question 68

Escobar and Woods are partners who share profits and losses in the ratio of 60 and 40 percent, respectively. The partnership agreement provides that each will be paid a yearly salary of $18,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $60,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Escobar?
2. What amount of net income or loss will be allocated to Woods?

Question 69

Walters and Kim are partners. The partnership agreement provides for salary allowances of $26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's invested capital at the beginning of the year. The balance of any remaining profits or losses is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2013, the capital account balances were Walters, $75,000, and Kim, $95,000. Net income for the year was $72,000.
1. On page 10 of a general journal, record the following entries on December 31, 2013. Omit descriptions.

A) Record the salary allowances for the year.
B) Record the interest allowances for the year.
C) Record the division of the balance of net income.
D) Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries.
2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2013.

Question 70

Net income for Costmore Sales for the year ended December 31, 2013, was $32,000.The partners, Johnson and Lindstrom, share profits in the ratio of 60 and 40 percent, respectively. The balance in Johnson's capital account is $60,000. The balance in Lindstrom's capital account is $60,000.
1. How much of the net income will be allocated to Johnson?
2. How much of the net income will be allocated to Lindstrom?

Question 71

Brian McCarthy owns and operates a business called Brian's Music Shop. His postclosing trial balance on December 31, 2013, is provided below. Brian plans to enter into a partnership with Emma Jones, effective January 1, 2014. Profits and losses will be shared equally. Brian will transfer all assets and liabilities of his shop to the partnership, after revaluation. Emma will invest cash equal to Brian's investment after revaluation. The agreed values are: Accounts Receivable (net), $10,000; Merchandise Inventory, $35,000; and Store Equipment, $15,000. The partnership will operate under the name Beautiful Music. Record each partner's investment on page 1 of a general journal. Omit descriptions.
Prepare a balance sheet for Beautiful Music just after the investments.

Question 72

Mavis and Roxanne are partners who share profits and losses equally. The partnership agreement provides that Mavis will be paid an annual salary of $54,000 and Roxanne will be paid an annual salary of $36,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a debit balance of $10,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Mavis?
2. What amount of net income or loss will be allocated to Roxanne?

Question 73

Peter Nguyen and Loren Washington are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2013, they decide that Washington will sell one-half of her interest to Grace Dolores. At that time, the balances of the capital accounts are $75,000 for Nguyen and $45,000 for Washington. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $42,000 revalued at $48,000, and a building with a book value of $100,000 revalued at $120,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

Question 74

Kaitlyn Fields and Tyler Unger are partners. To expand the expertise of their business, they have agreed to admit Serena Singh to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Fields, $80,000, and Unger, $60,000. Net income or net loss is shared equally. On page 7 of a general journal, record the admission of Singh to the partnership on January 1, 2013, assuming that Fields sells one-half of her interest to Singh for $39,000 in cash. Omit the description.

Question 75

Norton and Morris are partners. The partnership agreement provides that Norton will receive a salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. Both partners also receive 10 percent on their capital balances at the beginning of the year. The balance of any remaining profits or losses is divided equally. The beginning capital account balances for 2013 were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has a net income of $60,000.
1. What amount of net income or loss will be allocated to Norton?
2. What amount of net income or loss will be allocated to Morris?

Question 76

Norma and Marilyn are partners. The partnership agreement provides that Norma will receive a salary of $30,000 and Marilyn will receive a salary of $50,000. These salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. Both partners also receive 8 percent on their capital balances at the beginning of the year. The balance of any remaining profits or losses is divided equally. The beginning capital account balances for 2013 were Norma, $80,000, and Marilyn, $40,000. At the end of the year, the partnership has a net income of $90,000.
1. What amount of net income or loss will be allocated to Norma?
2. What amount of net income or loss will be allocated to Marilyn?

Question 77

Wright and Beard are partners. Net income or loss is allocated on the basis of the balances of the partners' capital accounts at the beginning of the year. On January 1, 2013, the balances were Wright, $42,000, and Beard, $18,000. Net loss for the partnership for the year ended December 31, 2013, was $9,000.
1. How much of the net loss will be allocated to Wright?
2. How much of the net loss will be allocated to Beard?

Question 78

Lenik and Olsen are partners who share profits and losses in the ratio of 60 and 40 percent, respectively. The partnership agreement provides that each will be paid a yearly salary of $19,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a debit balance of $4,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Lenik?
2. What amount of net income or loss will be allocated to Olsen?

Question 79

Roy Reynolds and Mike Truesdale are partners. To expand the expertise of their business, they have agreed to admit Jennie Fellows to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Reynolds, $80,000, and Truesdale, $60,000. Net income or net loss is shared equally. On page 20 of a general journal, record the admission of Fellows to the partnership on January 1, 2013, assuming that Fellows invests $46,000 for 20 percent interest in the business. Omit the descriptions.

Question 80

Brian Colt and Karen Randall are partners who share profits and losses in the ratio of 70:30, respectively. On December 31, 2013, they decide that Randall will sell one-half of her interest to Jane Wu. At that time, the balances of the capital accounts are $70,000 for Colt and $30,000 for Randall. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $11,000 revalued at $10,000, and a building with a book value of $60,000 revalued at $70,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.